Sunday, March 23, 2008

Section 6.10

Those wonks who've been following the news about the disintegration of Bear Stearns in recent days will know at once to what the above subject line refers.

Section 6.10 is the "deal protection" clause of the merger agreement between Bear and itsacquirer, JP Morgan.

The agreement as a whole in all its 47 pages of glory is readily available. Here's one of the clicks that will get you there.

6.10 provides that if the shareholders of Bear Stearns vote against this chintzy two-dollar deal, "each of the parties shall in good faith use its reasonable best efforts to negotiate a restructuring of the transaction provided for herein ... and to resubmit the transaction to Company's shareholders for approval, with the timing of such resubmission to be determined at the reasonable request of Parent."

"Company" is Bear and "Parent" is JPMorgan.

What this seems to mean is that the shareholders can't say "no." At least not on the first try. They can at worst say, "maybe not, restructure it a bit and try us again."

But how many times would they have to say that before it amounted to a "no"? This seems a bit like the infamous closed loop on the shampoo bottle's instructions, said to keep many a blonde busy for days. "Apply, lather, rinse, repeat."

The Deleware courts have imposed certain restructions on the enforceability of such "deal protection devices," such that this language may be subject to challenge by those shareholders.

For more on the legal issues involved, you might want to click here.

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